FORTUNE — The announcement last month that ConocoPhillips plans to break up into two separately traded companies took Wall Street by surprise, raising uncomfortable questions as to Big Oil’s raison d’etre. If COP proves that it can indeed unlock value from separating its exploration and production unit from its refining and marketing units, then other companies, namely BP and ExxonMobil, could soon find themselves under pressure from their shareholders to follow suit, forever changing the energy landscape.

Up until now, it was widely accepted that being bigger was the key to being a better oil company. That view was taken to its logical extreme in the late 1990s when the “Super Major” oil company was born. In the United States, Conoco merged with Phillips, Chevron merged with Texaco and Exxon merged with Mobil. In Europe, BP snapped up U.S. oil companies Amoco and Arco while France’s Total acquired Belgium’s Petrofina and fellow French oil company Elf Aquitaine. Only Royal Dutch Shell avoided the merger mania.

The reason for the mergers was clear — oil prices had collapsed. In the late 1990s, oil traded down as low as $10 a barrel due to a myriad of events — some situational, like the Asian economic crisis of 1998, and some structural, like the decreasing link between oil consumption and economic growth in Western nations. In addition, the number of oil fields that were open to commercial development had diminished, while royalties from existing fields were on the wane as oil-producing countries demanded a larger piece of the revenue pie.

The mergers were seen as a success for most of the majors as they were able to rationalize their business models and streamline operations. Being bigger gave them more pricing power when dealing with oil service contractors and greater leverage when negotiating with foreign governments. But the benefits of being bigger seemed confined to separate business units: While a refining unit got more efficient through the merger, it wasn’t because the company had a strong exploration and production unit, and vice versa.

That’s because the exploration side and the refining side of the oil business have little to do with one another. Contrary to popular belief, Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world’s oil reserves and the Wall Street banks and hedge funds that speculate and make markets in the oil trading game. So even though ExxonMobil pumps oil, it can’t guarantee that its refining unit will be able to profitably process a barrel into gasoline or heating oil.

Pure-play revival

Investors who wanted exposure to the oil and gas sector noticed this disconnect. As they put more money in the smaller, pure-play companies that focused on one industry vertical, Big Oil began to trade at a discount. In fact, since the merger mania of 2000, Big Oil has traded at an average discount of between 11% and 12% compared to their smaller pure play competitors, according to a recent study by Citi Investment Research and Analysis.

That discount translates into billions of dollars in lost value in companies this big. Take the case of Marathon Oil. The small integrated oil and gas firm announced in January that it was splitting up into two companies – one that concentrated on exploration and production and one that concentrated on refining and marketing, similar to the COP split. The day before the announcement, Marathon had a market value of around $28.9 billion. Today, the two independent companies, Marathon Oil Corporation and Marathon Petroleum Corporation, have a combined market value that is 30% higher at $37.4 billion, which means the split potentially unlocked $8.5 billion in value.

If COP were to ultimately gain 30% in its split, it would add a whopping $33 billion in value, based on its market valuation on the day before the deal was announced. But unlike with Marathon, COP has seen its share price fall since its announcement — down around 3% on lackluster earnings.

Of course, Marathon and COP were trading at different places when they announced their decisions to split up, with Marathon (MRO) trading at around a 20% discount to other integrated oil companies, while COP was trading more or less on par with its peers. It seems like the market revalued Marathon to trade in line with its peers and then credited it an additional 10% in value to make up for the average discount between integrated oil companies and pure-play companies. If that logic holds and COP pops 10%, it could still stand to unlock $18 billion in value – not too shabby.

The remaining oil majors — ExxonMobil (XOM), Total, Chevron (CVX), Shell (RDSA) and BP (BP) — as well has the smaller integrated oil companies, like Hess, will undoubtedly be watching COP (COP) intently as it begins its dismemberment. Analysts have already started to fiddle with the numbers. Most have pointed at BP as being ripe for a break up. The oil major currently trades at a fraction of its net asset value, thanks mostly to the black eye it took from the massive oil spill in the Gulf of Mexico last year. Deutsche Bank estimates that if BP were to spin off its refining and marketing unit, it could unlock $15 to $20 billion in value if it were to trade in line with its peers.

But the analysts at Deutsche Bank say it’s “foolhardy” to believe that the company would make any major strategic split given the billions of dollars in potential losses it still faces in connection to last year’s oil spill. It could take years for that mess to be sorted out, keeping BP together by force. Then again, BP is already taking steps to reduce its refining presence without a split by selling off some of its largest refineries to help pay for damages in connection with the spill.

BP is not alone in selling off its refineries. For example, Shell has cut 40% of its refining capacity in the last 12 years through asset sales. A split in Shell’s case therefore might not yield the same value as it would for COP.

Furthermore, oil companies are conservative, so convincing them to make a radical split, even if it could potentially unlock billions of dollars in value, won’t be easy. Take ExxonMobil. Just a 10% increase in value through a split would be worth $43 billion to shareholders, which is equivalent to the GDP of Tunisia. But ExxonMobil is known as the most conservative member of Big Oil, making any split hard to imagine.

“Although ExxonMobil would the ideal candidate since a split could unlock the most value, it is the least likely to do so, as management is convinced that the integrated model will serve it in the future as it has in the past,” says Fadel Gheit, the energy analyst at Oppenheimer.

But even ExxonMobil isn’t immune to shareholder pressure. COP is slated to complete its split in the first quarter of next year, giving the company’s shares some time to turn to the upside.

If the ConocoPhillips story is a success for shareholders, there will be calls to break up Big Oil just in time for the annual meetings in the spring. So by this time next year, it is possible that Big Oil will go the way of Rockefeller’s once gargantuan Standard Oil — with the markets, not the government, forcing a break up this time.

A plan to overhaul pipeline safety rules today cleared its first hurdle in the House Energy and Commerce Committee with a quality rarely seen in one of the Capitol’s biggest partisan hotbeds: cross-aisle agreement.

Top Democrats on the panel hailed its GOP leaders for seeking their input and collaborating on a manager’s amendment to the pipeline bill that saw Rep. John Dingell (D-Mich.) ally with Energy and Commerce Chairman Fred Upton (R-Mich.). While contentious issues could yet crop up ahead of a full-committee markup expected in September, the legislation appeared to presage a smooth ride for the legislation.

“If we continue this, bipartisanship may become a habit” on the energy and power subpanel that cleared the pipeline bill today, Rep. Bobby Rush (D-Ill.) said. “That would be a good thing, not a bad thing.”

Rush outlined two hoped-for tweaks to the bill, including a mandate that the Pipeline and Hazardous Materials Safety Administration
implement new regulations for the transport of politically volatile Canadian oil sands crude. But his broad support for the measure was
echoed by Rep. Henry Waxman of California, the committee’s top Democrat.

That strengthening PHMSA’s authority over the 2 million-plus miles of U.S. oil and gas pipelines would become a team effort on the Energy and Commerce Committee — the site of some of this year’s most acrimonious
battles over environmental policy — is not entirely surprising but was hardly assured.

Upton’s interest in the issue amplified after a pipeline rupture last year spilled an estimated 800,000 gallons of crude into a waterway near
his district, and his panel’s draft bill went further than a Democratic-authored Senate bill in some respects (E&E Daily, July 11).
Yet the bipartisan pipeline safety bill is advancing while the parties tangle over the Keystone XL link between Gulf Coast refineries and the
Canadian oil sands, a vicious political clash that came to a head less than 24 hours ago (E&E Daily, July 27).

Among the changes to the draft PHMSA bill approved today, via an Upton-Dingell substitute amendment, were two provisions designed to respond to recent high-profile pipeline breaks. The first requires gas line operators to document their maximum allowable operating pressure, a key
issue in the 2010 rupture that killed eight residents of San Bruno, Calif.; the second, setting up a PHMSA review of existing rules for the
burial of pipelines under waterways, addresses a question that has lingered in the weeks since a July 1 oil leak in Montana’s Yellowstone River (E&E Daily, July 8).

“I believe pipelines can deliver growing energy supplies to families and businesses in the years ahead, and I believe they can do it safely,” Upton said today. “But as the recent spills have shown, the status quo is not good enough, and the goal of [the committee’s bill] is to ensure a much stronger safety record in the future.”

A Senate counterpart plan advanced to the floor with bipartisan backing, but its passage by unanimous consent remains blocked by anonymous GOP objections related to the cost of implementing new safety
rules that also are included in the House version (E&E Daily, July 20).

Notably, the pipeline bill did not attract unanimous praise from the Energy and Commerce panel’s members. Rep. Gene Green of Texas, an oil-patch Democrat, called it a “solid first step” but said he wants to see
changes to language affecting potential regulation of offshore gathering pipelines as well as integrity management plans drafted by operators.

Rep. Lee Terry (R-Neb.), for his part, aired concerns also voiced by industry about the bill’s one-hour time limit for pipeline operators to report ruptures or incidents along their networks.

WASHINGTON, DC, July 22 — Dissension over revenue sharing with states kept the Senate Energy and Natural Resources Committee on July 21 from voting on a bill to reform federal management of resources on the US Outer Continental Shelf. The committee lost its quorum soon after two of its members, Mary L. Landrieu (D-La.) and Lisa Murkowski (R-Alas.), the committee’s ranking minority member, introduced their revenue sharing amendment, and the vote was postponed.

Several committee members spoke in favor of the amendment, Murkowski said afterward. She said she planned to work with them in the days ahead to refine the amendment’s language to include funding for renewable energy projects at the state level, and to reschedule the markup soon so that S. 917, the Outer Continental Shelf Reform Act, and the amendment could be voted on.

“Those who understand the importance of inviting coastal states to be partners in our efforts to increase the nation’s energy security are not going to let this issue go away,” Murkowski said. “It is in our best interest to have American workers producing American energy, and revenue sharing will help us reach that goal.”

The Landrieu-Murkowski revenue sharing amendment would allow coastal states to retain a portion of the revenues generated by energy production in federal waters, beginning in 2019. It would apply to all forms of energy production, from oil and gas to wind and hydrokinetic. Murkowski’s new language would create a coastal state clean energy fund with 12.5% of the overall federal revenue from offshore production.

While the committee postponed its vote on revenue sharing, it passed S. 916, the Oil and Gas Facilitation Act, by voice vote. The bill would extend a federal permit processing improvement pilot program through 2020, authorize co-production of geothermal energy on oil and gas leases, mandate a comprehensive inventory of OCS resources, establish an Alaska OCS permit processing coordination office, and phase out deepwater royalty relief.

The US House Natural Resources Committee, meanwhile, plans to hold a hearing on July 27 to examine state perspectives on offshore revenue sharing.

(Reuters) – TransCanada Corp said on Tuesday that Exxon Mobil’s 1,000-
barrel oil spill into the Yellowstone River will not derail its plans
to build the Keystone XL pipeline, but environmentalists promised
renewed pressure to block approval.

TransCanada is awaiting State Department approval to build the $7
billion Keystone XL line, which would carry 700,000 barrels per day of
crude oil to the gulf coast refining hub. A final decision on the
company’s application is expected by year end.

“Any time something like (the Exxon spill) happens it brings more
attention to the pipeline industry,” said Terry Cunha, a spokesman for
TransCanada. “But we’ll continue to move along with the process … and
address any issues the Department of State may have as we move
forward.”

Environmental groups, some legislators and landowners along the line’s
planned route are pressing the Obama Administration to deny
TransCanada’s application, spurred by worries about the line’s safety
following BP’s Gulf of Mexico oil spill, the 20,000 barrel spill from
an Enbridge Inc pipeline in Michigan and well-publicized leaks from
TransCanada’s existing Keystone system.

The Saturday spill from an Exxon line under the rain-swollen
Yellowstone River gives the line’s opponents another argument against
approving Keystone XL, since TransCanada also plans to run the line
underneath the river.

“The Yellowstone is one of our last truly wild rivers,” said Susan Casey-Lefkowitz, director of the international program at the Natural
Resources Defense Council.

“Putting it at risk with an even-more corrosive and liable to spill or
leak pipeline like the Keystone XL tar sands pipeline is something that
both Montana and the federal government are going to be taking a hard look at, I think.”

TransCanada disputes claims that crude from Alberta’s oil sands is more
corrosive than any other type of oil. It also says that the line will
be buried well under the Yellowstone river, use thicker steel and
operate at lower-than-allowed pressures.

“The pipeline would be a minimum of 25 feet below the riverbed,” Cunha
said. “Additionally, entry and exit points for the crossing would be
extended away from the banks for the river. Thus, any risk of scour or
erosion exposing the pipe is mitigated.”

A number of pipelines already carry Canadian oil across the
Yellowstone, including Kinder Morgan Energy Partners’ 280,000 bpd
Express Pipeline and the Western Corridor pipeline system operated by
Plains All American Pipeline LP which can ship as much as 33,900 bpd.
Those lines carry crude to refineries in the U.S. Midwest and Rocky
Mountain regions.

(AP) LAUREL, Mont. (AP) – Authorities struggled Sunday to gauge the environmental and crop damage from tens of thousands of gallons of oil that spilled into the legendary Yellowstone River, as Montana’s governor criticized Exxon Mobil for downplaying the scope of the disaster.

A break in a company pipeline near Laurel fouled miles of riverbank and forced municipalities and irrigation districts to close intakes across eastern Montana.

Exxon Mobil brought in more cleanup workers to mop up crude at three sites along the flooded river that were coated with thick globs of crude. Yet there was no clear word on how far the damage extended along a scenic river famous for its fishing and vital to farmers who depend on its water for their crops.

The uncertainty frustrated riverfront property owners such as Linda Corbin, who worried that severe damage would be revealed as the flooding Yellowstone recedes in coming weeks. The stench of spilled crude was obvious in Corbin’s backyard – a reminder of the potential problems lurking beneath the surface of the nearby river.

“The smell has been enough to gag a maggot,” said Corbin, 64. “I just hope it doesn’t come too far because I’m on a well, and I won’t appreciate having to shower in Exxon oil.”

Environmental Protection Agency spokeswoman Sonya Pennock said its staff had spotted oil at least 40 miles downstream. There were other reports of oil as far as 100 miles away, near the town of Hysham.

After Exxon Mobil Pipeline Co. president Gary Pruessing said flyovers had shown most of the damage was limited to a 10-mile stretch of river, Gov. Brian Schweitzer dismissed the claim as premature.

The Democratic governor said Exxon Mobil needed to get more personnel to inspect the situation close-up. He also slammed Pruessing’s statement to reporters that no injured wildlife had been found.

“For somebody to say at this early stage that there’s no damage to wildlife, that’s pretty silly,” Schweitzer said. “The Yellowstone River is important to us. We’ve got to have a physical inspection of that river in small boats – and soon.”

Exxon estimated that up to 1,000 barrels, or 42,000 gallons, spilled Saturday before the flow from the damaged pipeline was stopped. An EPA representative said only a small fraction of the spilled oil was likely to be recovered.

State officials earlier reported a 25-mile long slick headed downstream toward the Yellowstone’s confluence with the Missouri River, just across the Montana border in North Dakota. Authorities had no further reports on that slick, and Pruessing said the oil appeared to be evaporating and dissipating as the Yellowstone carries it downstream.

Pruessing also said that the 12-inch pipeline had been temporarily shut down in May because of concerns over the rising waters on the Yellowstone. He said the company decided to restart the line after examining its safety record and deciding the risk was low.

The U.S. Department of Transportation, which oversees pipelines, last year issued a warning letter to Exxon Mobil that cited seven safety violations along the ruptured Silvertip pipeline. Two of the warnings faulted the company for its emergency response and pipeline corrosion training.

Transportation department spokeswoman Patricia Klinger said the company has since responded to the warnings and the case was closed.

The company and government officials have speculated that high waters in recent weeks may have scoured the river bottom and exposed the pipeline to debris that could have damaged the pipe. Eastern Montana received record rainfall in the last month and also has a huge snowpack in the mountains that is melting, which has resulted in widespread flooding.

“We are very curious about what may have happened at the bottom of the river. We don’t have that yet,” Pruessing said.

Crews were putting absorbent material along short stretches of the river in Billings and near Laurel, but no attempts were made at capturing oil farther out. In some areas, oil flowed underneath booms.

EPA on-scene coordinator Steve Way said fast flows along the flooding river were spreading the oil over a large area, making it harder to capture. But Way said that also could reduce damage to wildlife and cropland along the river.

Property owners said they could not wait long for Exxon to clean up, particularly in agricultural areas where crops and grazing pastures were at risk. The Yellowstone River also is popular among fishermen, though areas further upriver from the spill are more heavily trafficked.

Billings-area goat rancher Alexis Bonogofsky said the flooding Yellowstone brought the oil into her summer pastures – pollution that she was afraid would kill the grass needed to feed her animals.

“My place is covered with oil,” she said. “I would like a list that says: `This is what’s in crude oil.”‘

The 20-year-old pipeline was last inspected in 2009 using a robotic device that travels through the line looking for corrosion, dents or other problems, Pruessing said. Tests to determine the pipeline’s depth were taken in December, and at the time, the line appeared to be 5 to 8 feet below the riverbed, he said.

“It was completely in line with all regulatory requirements,” he said.

Workers first became aware of a problem with the pipeline when pressure readings dropped early Saturday. Pruessing said workers began shutting down the line within six minutes, although company officials declined to say how long that process took.

The spill was small compared to other oil-related disasters, such as the 11 million gallons leaked by the Exxon Valdez in Alaska in 1989. But officials said the pristine nature of the Yellowstone, along with its turbulent waters and riverside communities, complicated their cleanup efforts and attempts to assess the damage.

LAKE WORTH Upwards of 5,000 people joined hands across Florida beaches at noon Saturday to protest offshore oil drilling and promote clean energy.

The state’s annual ‘Hands Across the Sand’ event coincided with similar gatherings around the country to raise awareness about the dangers of offshore drilling and to call on elected leaders to end America’s dependence on oil.

At least 100 people linked up at each of more than 50 locations around the state. Ana Campos of the Clean Energy Coalition of South Florida co-organized the event on Fort Lauderdale’s beach and was thrilled by the large turnout.

“We had about 400 people last year, but that was right on the heels of the BP oil spill,” she said. “I was still really surprised that we had around 150 people show up. We had a great crowd. I was very, very happy.”

More than 100 showed up at the Lake Worth pier, as well Saturday.
Participants joined hands along the shoreline for 15 minutes to signal solidarity. There were speakers, a beach clean-up and entertainment. Some carried signs that read: “Drillers are Killers, keep our beach out of reach” and “Boycott BP, make big oil pay.”

State Rep. Jeff Clemens, D-Lake Worth sits on the House Energy and Utility Committee and joined the event in Lake Worth.
“It’s not just a green issue, it’s an economic issue,” Clemens said. “We’re talking about bringing jobs to Florida. Clean energy is really our next great economy in the world and the United States. We’re being beat by China. We’re being beat by Germany. We need to pick up the ball and run with it and we do that by not relying on oil resources for our energy needs.”

Environmental science and marine biology teacher Gina Hertz is a Pensacola native who saw the impact of the BP oil spill first hand.
“It was unbelievable when you go to Pensacola Beach and see no one there except for a clean-up crew in their hazmat suits,” Hertz said. “It was disgusting.”

Diver Molly Munro said the underwater impact of the Gulf oil spill remains unknown.
“Our marine environment has already gone down so much in 10, 15 years,” Munro said. “Reefs and fish are missing; the risk of oil [drilling] is just way too much.”

‘Hands Across the Sand’ was founded by Floridian Dave Rauschkolb in October 2009 and is endorsed by national environmental organizations including Sierra Club, Audubon Society, Surfrider Foundation, Friends of the Earth, CleanEnergy.org and many others. These groups continue to fight those in Congress and the Florida Legislature who wish to lift the ban on oil drilling in the waters off Florida.

The first event was on Feb. 13, 2010, and attracted 10,000 participants on 90 beaches in Florida, from Jacksonville to Miami Beach and Key West to Pensacola Beach, according to ‘Hands Across the Sand.’

H.R. 2021, The “Jobs and Energy Permitting Act of 2011,” would block the U.S. Environmental Protection Agency (EPA) from regulating dangerous air pollution from offshore oil drilling, including America’s Arctic Ocean. America’s Arctic Ocean, located off the north coast of Alaska, is warming at twice the rate of the rest of the world and is one of the most vulnerable regions in the country. At its core, this bill gives Shell Oil – the world’s second largest corporation, with profits upwards of $8.7 billion in the first three months of 2011 alone – exemptions to important air pollution controls and a free pass to pursue risky and aggressive oil drilling in the Arctic Ocean on its own terms by severely limiting public and judicial review during the oil and gas permitting process. What’s more, by stripping the EPA of its authority to protect Arctic communities from air pollution, it sends the message to the people who live on the Arctic coast that the oil industry is more important than they are.

Why the “Jobs and Energy Permitting Act of 2011” is bad for America’s Arctic

Gives oil companies a pass to pollute. The legislation exempts offshore drilling companies from applying pollution control technology to vessels, such as ice breakers, which can account for up to 98 percent of air pollution from drilling. It also opens a loophole for drill ships to pollute with no limits while the ship moves into place. And, instead of measuring the pollution at the source itself, the legislation allows oil companies to measure the impacts at the shore – resulting in more air pollution overall.

Poses health risks to the surrounding communities. Pollution from the offshore oil industry includes high levels of solid, air-borne pollutants (fine particulate matter: smoke, fumes, dust, ash, soot) – including black carbon which contributes to climate change and is potentially radioactive. These pollutants can cause severe lung problems and other major health issues. The oil industry on Alaska’s North Slope annually generates more than twice the amount of smog-forming pollution (nitrogen oxides) than the major metropolitan area of Washington, DC. In such a sensitive and vulnerable region, it makes no sense to provide a blanket exception to Clean Air laws that have saved more than 200,000 lives and prevented millions of asthma attacks, heart problems and other serious illnesses in just the past 20 years.

Eliminates third-party, expert decision making in the permitting process. The Environmental Appeals Board (EAB) is an independent body within EPA that provides an expert, efficient and impartial review of agency permitting decisions. The legislation prevents only those affected by the offshore oil industry’s air pollution from appealing permit decisions to the EAB, instead it requires permit appeals to go before the District of Columbia Circuit Court of Appeals.

Denies communities rights to participate in the permitting process. If this legislation became law, air permit applications for offshore drilling would be required to be granted or denied within six months of a completed application. This is an important environmental justice issue: in cutting the EPA’s permit review time for just these permits in half, this bill ignores the rights of the Inupiat people of Alaska’s North Slope and other Americans who may have complaints about pollution from the offshore oil industry.

Shell itself is responsible for its permitting problems. Shell’s own attempts to avoid investing in pollution controls have caused the delays in the process, and Congress should not give it a free pass to pollute.

Background on Shell’s Air Permits

In 2009, Shell applied for major source permits from the EPA for proposed drilling operations in the Arctic’s Chukchi and Beaufort Seas. After applying tremendous pressure to EPA Region 10 to act quickly and issue lax permits, the agency caved in to Shell’s demands and issued Shell its permits. These permits were declared unlawful by the Environmental Appeals Board (EAB) on December 30, 2010 and February 10, 2011. The “Jobs and Energy Permitting Act of 2011” would effectively revoke EAB’s findings and give Shell the extremely lax permits to pollute.

Effects of Shell’s Air Permits

Shell’s 2010 plans could have caused significant pollution emissions, and Shell’s 2012 plans are even worse. Shell’s 2010 operations in the Chukchi Sea alone would have released as much particulate pollution as: 825,000 cars driving 12,000 miles in a year (proposed plans for 2012 would double these figures); as much CO2 as the annual household emissions of 21,000 people; over 1000 tons of NO2; and, over 57 tons of PM2.5. These pollutants could have significant health and climate impacts on surrounding communities of the Arctic Slope. The illegal permits would have allowed this much pollution by, among other things:

Excluding drillship emissions from the permit except for the time period when it is actually drilling;

Excluding emissions from required support vessels, such as icebreakers, which can account for as much as 98% of overall project emissions;

Exempt Shell from having to meet new standards for NO2, carbon dioxide and fine particulate matter

Shell’s plans could cause significant health problems for surrounding communities. The EPA has recognized that the prevalence and severity of asthma is higher among Alaska Natives, and therefore these people are uniquely vulnerable to the health impacts of air pollution associated with offshore drilling. Already, the children and elderly of Arctic Slope communities are getting sick from air pollution related to onshore oil and gas activities. The Inupiat people spend a considerable amount of time on or close to Arctic Ocean waters, which means that offshore oil and gas activities would only make an already bad situation worse.